XAU/USD defends key $4,280 support ahead of Fed verdict

• Gold briefly regains $4,300 early Wednesday, replicating Tuesday’s Asian bounce.
• US Dollar consolidates at two-week highs as Treasury yields retreat and focus shifts to Fed.
• Gold defends key 50-day SMA at $4,280, while 100-day SMA near $4,330 caps upside amid bearish RSI.

Gold is attempting another run above $4,300 early Wednesday, replicating a tepid bounce seen in Tuesday’s Asian trading. Gold’s next major directional move depends on the US Federal Reserve (Fed) monetary policy decision and outlook due later in the day.

The Fed is widely expected to raise benchmark interest rates by 25 basis points (bps) to 3.75%-4% on Wednesday, with the CME FedWatch tool suggesting roughly a 92% probability of such a move.

With a rate hike and Fed Chairman Kevin Warsh’s limited words, the focus will be on the Fed's signals on future rate hikes, highlighted by the Summary of Economic Projections (SEP), the so-called Dot Plot, and the language of the policy statement.

Meanwhile, if Warsh expresses concerns about persistent inflation pressures, that could also offer hints on potential rate hikes.

Traders will look for clues to determine whether the rate hike could be an ‘insurance hike’ rather than the start of an aggressive monetary tightening cycle, as the Fed remains committed to fighting inflation.

The policy announcements come against the backdrop of surging US Treasury bond yields to multi-year highs as the widening Middle East conflict continues to drive Oil prices higher and stoke inflation concerns.

Expectations of a hawkish Fed outlook keep the US Dollar (USD) near two-week highs against its six major currency rivals, while benchmark 10-year US Treasury yields hover near the 5% key level.

These factors continue to raise doubts about the latest rebound in Gold, which is mostly seen as position readjustments ahead of the Fed outcome.

That said, Gold remains exposed to two-way risks, with two potential scenarios on the Fed event risk highlighted below.

If the Fed hikes by 25 bps, signals another hike this year, and Warsh stresses persistent inflation, the USD and Treasury yields could jump, putting fresh pressure on Gold.

On the other hand, if the Fed hikes but delivers a split vote, a softer dot plot, or calls the move an insurance hike, the USD could weaken, and Gold could rebound.

Strategists at ING observe that “much of the hawkish Fed risk appears to be priced in,” but caution that gold “could remain vulnerable if policymakers signal rates will stay higher for longer.” At the same time, they argue that “persistent geopolitical risks and concerns over the economic impact of elevated energy prices should continue to provide underlying support,” leaving the metal caught between tighter Fed expectations and ongoing safe-haven demand.

In the daily chart, XAU/USD trades at $4,328.88, holding just around the 100-day simple moving average (SMA) near $4,330 while remaining capped by the 21-day SMA near $4,449.03. This configuration, with price lodged between medium- and short-term averages and the Relative Strength Index (RSI) hovering around a neutral 47, suggests a consolidative bias as bulls and bears await a clearer directional break.

On the topside, initial resistance appears at the 21-day SMA near $4,449, with the longer-term 200-day SMA around $4,540 acting as a more significant barrier if buyers regain control. On the downside, immediate support is provided by the nearby 100-day SMA at $4,327, followed by the 50-day SMA around $4,281, where a break lower would hint at a deeper corrective phase toward earlier lows.